Tax revenue debate delays desal plant

Science may offer the means for converting seawater into fresh water, but for now the future of a long-planned desalination plant in San Diego County may hinge on something so unrelated as the desire to realign a road.

Operating under the philosophy that a public agency never can be too careful, the host city for the facility is seeking assurances the public-private partnership won’t dry up tax revenues for other needs.

The Carlsbad Municipal Water District is the only agency that hasn’t signed off on a revised water-purchase agreement for the desalination project. A proposal for addressing its revenue concerns — which carry implications of up to $2.5 million a year — reached the San Diego County Water Authority this month.

No one expects a serious snag, but the issue means Poseidon Resources, which has pursued the project for a decade, will have to wait until next year to line up construction funding. Meanwhile, an oft-delayed timeline for the beginning of commercial operations has slipped to late 2013.

Located next to the Encina Power Station in Carlsbad, the plant is expected to generate enough fresh water for 300,000 county residents — 50 million gallons a day — by removing salt and microscopic impurities from Pacific Ocean water.

Poseidon Vice President Scott Maloni said the project is making “slow but steady progress” as the agencies involved try to put finishing touches on the revised agreement.

Replacing previous 30-year agreements with nine separate agencies, the pact makes the county water authority the sole purchaser as an umbrella organization. It also gives the agency an option to buy the desalination plant after 10 years.

An authority-owned plant, however, would be exempt from property taxes and deprive Carlsbad of a sizable revenue stream for long-planned redevelopment projects, said Glenn Pruim, utilities director for the Carlsbad Municipal Water District.

Depending on how the desalination plant is taxed, he said, it could mean as much as $2 million to $2.5 million a year, revenues that would have been collected in perpetuity under the plan Carlsbad originally backed.

Among other objectives, Carlsbad had been counting on the revenue for a realignment of Carlsbad Boulevard near Palomar Airport Road and converting some oceanfront land into a park.

The buyout is only an option, said Ken Weinberg, director of water resources for the water authority. “We don’t have any intention to buy the plant after 10 years unless it’s in the interests of the ratepayers.”

The agency has a tremendous incentive to finish the talks, he said, given the implications for the region’s chronic water shortages.

“I think there’s a reasonable solution there,” Weinberg said.

Pruim also expressed a desire to find resolution. “We’re totally committed to this project,” he said. “We certainly don’t want to do anything to jeopardize it.”

Pruim declined to detail the water district’s proposals to revise the agreement. After a staff analysis, those strategies could be submitted to the water authority’s board and Carlsbad City Council by January.

If an agreement is reached, Maloni said, Poseidon could seek bond funding for the project in March and begin the 30-month construction and testing schedule shortly thereafter. Poseidon has secured all applicable permits, but has two unresolved legal challenges on environmental issues.